Tax Services
Changes to the UK income tax and
National Insurance treatment of share
incentives awards for internationally
mobile employees
Employers need to consider and take action before
6 April 2015
The taxation of certain share incentives for internationally mobile employees (IMEs) will
change from 6 April 2015. The legislative changes have been introduced by the UK
Government in an effort to align the tax treatment of different types of share incentive
awards.
The changes may have a significant impact on IMEs who have equity awards and who
‘touch’ the UK. Employers need to understand the legislative changes in order to ensure
that they have the correct tracking mechanisms in place to comply with the new rules.
A corresponding change to the UK National Insurance contributions (NICs) law will apply
a new apportionment to any awards that are not exempted from NICs by the European
Economic Area (EEA) social security coordinating regulations, reciprocal agreements,
or because UK domestic law residence conditions are not met for moves to rest of world
(ROW) countries. Disappointingly, the apportionment is based on different principles
from those applied for UK tax, so alignment of the figures that have to be subject to UK
tax and NICs is likely to be rare in practice unless the IME has no workdays outside the
country in which he is tax resident.
The legislation will apply retrospectively and will impact taxable events from 6 April
2015, regardless of the date that awards were initially granted. The tax treatment preand post-6 April 2015 can vary considerably.
In addition, a new requirement to register all share plans with HMRC by 6 July 2015 and
the introduction of on-line reporting for awards from 2014/15 onwards are likely to
intensify HMRC scrutiny of share plans and compliance with associated reporting
requirements.
Key issues and impact
The key issues and impact of the change in legislation are best addressed through the use of examples pre and
post 6 April 2015. We have used share options as a sample share award as these are one of the more
prevalent share plan arrangements that are impacted by these changes. Please note that other types of share
award are impacted in a similar way.
Example 1
IME granted a share option in March 2011 whilst working in France. IME not resident or working in the UK in
March 2011 and grant not made in contemplation of UK duties. In March 2013 the IME comes to the UK to work
for a UK employer and becomes UK tax resident. The option vests in March 2014.
Current rules Option exercised before 6 April 2015: No UK income tax and NI payable at the date of exercise
because the employee was not resident in the UK at the date of grant.
New rules Option exercised on or after 6 April 2015: UK income tax is payable based upon the period of time
spent in the UK during the grant to vest period. For tax, an apportionment may be possible to exclude the part
of the gain attributable to any non-UK workdays. If the employee transfers to the UK on a local contract and so
becomes liable to NICs, under the proposed new law NICs will also be payable on the gain for the whole period
from March 2013 to March 2014, regardless of where the employee has actually worked during that period.
March
2011
March
2013
The overseas part
March
2014
The UK part
No UK tax
UK tax
Timeline old rules
Timeline new rules
Example 2
IME granted a share option in March 2011 whilst resident and working in UK. In March 2013 the IME leaves the
UK to work for a new local employer in the United Arab Emirates (UAE). The option vests in March 2014. Option
is exercised in UAE when the employee has ceased residence in the UK.
Current rules UK income tax is payable on the date of exercise on the full gain because the employee was
resident in the UK at the date of grant and no treaty is available to limit the UK’s taxing rights. No NICs are due
under existing UK law because the IME is not subject to a NIC’s liability from date of departure.
New rules UK income tax is payable based on the time spent in the UK during the grant to vest period. As the
employee has moved to a new employer in UAE, the employee will cease to be within the scope of UK NICs from
the date the employee leaves the UK. Under the proposed new law, NICs will be payable on the gain for the
period up to March 2013 only.
March
2011
March
2013
The UK part
March
2014
The overseas part
Full UK tax
UK tax
Changes
to the UK
income
Timeline
old
rulestax and National Insurance treatment of share incentives awards for internationally mobile employees
Timeline new rules
2
Example 3
IME granted a share option in March 2011 whilst working in US. Employee is not resident or working in the UK in
March 2011 and grant not made in contemplation of UK duties. In January 2012 the IME comes to the UK on
assignment and becomes UK tax resident. The employee ceases residence in the UK in January 2014 and returns
to the US. The option vests in March 2014.
Current rules Option exercised before 6 April 2015: No UK income tax and NICs payable at the date of exercise
because the IME is not resident or working in the UK at the date of grant.
New rules Option exercised on or after 6 April 2015: UK income tax is payable based upon the period of time
spent in the UK during the grant to vest period – even though the employee is not in the UK at grant or exercise
(assuming no treaty can be applied to exempt the income). Again, for tax, an apportionment may be possible to
exclude the part of the gain attributable to any non-UK workdays. Provided that the employee was assigned to
the UK from the US the employee would normally remain insured under FICA and exempt from UK NICs.
March
Current
2011
January
2012
rules
The overseas part
January
2014
New rules
March
2014
The
overseas
part
The UK part
No UK tax
UK tax
Timeline old rules
Timeline new rules
Example 4
IME granted a share option in March 2011 whilst resident and working in India. Employee Not Resident or
working in the UK in March 2011 and grant not made in contemplation of UK duties. In March 2013 the IME
comes to the UK to work for a UK employer and becomes UK tax resident. The option vests in March 2014.
Current rules Option exercised before 6 April 2015: No UK income tax and NICs payable at the date of exercise
because the IME is not resident or working in the UK at the date of grant.
New rules Option exercised on or after 6 April 2015: UK income tax is payable based upon the period of time
spent in the UK during the grant to vest period. If the employee transfers to the UK on a local contract and so
becomes liable to NICs, under the proposed new law NICs will also be payable on the gain for the whole period
from March 2013.
March
2011
March
2013
The overseas part
March
2014
The UK part
No UK tax
UK tax
Timeline old rules
Timeline new rules
3
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Next steps
Review your share plans in order to confirm how the share
arrangements are impacted by the changes to UK legislation.

Review your population of IMEs to understand which employees
may be impacted by the changes. If you have a large tax equalised
population of inbounds, this could significantly increase your costs
(including employer NICs in some cases).

Consider the operation of your tracking systems for IMEs residence
and NIC or other country social security status – are COCs / A1
forms held? How will these systems need to change in order to
ensure compliance?

Following a review of your share plans and IME population, assess
whether there may be opportunities to minimise the tax and NICs
impact of these new rules.

Consider whether you want to communicate the changes to your
employees to ensure that they understand the impact of the
changes and enable them to decide whether to exercise prior to or,
on/after 6 April 2015.
The forthcoming changes do not impact cash incentives e.g. bonuses.
This means that the NICs treatment is likely to be different for trailing
cash and share based awards.
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Further information
For further information, please contact one of the following or your
usual EY contact:
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